- Ongoing clinical trial disruptions due to COVID-19, such as: operational delays, enrollment challenges, protocol adjustments, and decreased short- / moderate-term persistence, contribute to the uncertain outlook for industry research programs
- Small-cap, clinical-stage biopharma companies lacking a cashflow from marketed products stand to be particularly affected by COVID-19. A portion of these companies will face significant adverse events (e.g., trial reprioritization, further equity sale / dilution, unfavorable debt structures, downsizing), or acquisition / partnership
- While the financial impact of COVID-19 may not be damaging in the short-term (most small-caps are expected to have sufficient liquidity for the next six-to-twelve months), the associated R&D fallout will shape the strategic plans and commercial viability of small-cap biopharma in the medium-term (e.g., one-two years from now)
- Despite acute headlines around COVID-19 and its consequences on R&D, the largest negative impact to small-cap biopharma companies is likely driven by increasingly endemic COVID-19 scenarios. Trial enrollment rates will be subdued for quarters to come – slowly draining already thin R&D resources for many small-cap biopharma companies
- Clinical trials targeting mild-moderate disease activity, lower-mortality, chronic conditions with frequent follow-up visits, a focus on older patients, and long trial durations (i.e., higher portion of already recruited patients are likely to pass through the peak-pandemic) will suffer the most setbacks as a result of COVID-19
- There is growing evidence that supports the need for manufacturers starting clinical trials in the short-term to assess how the next 12 months may impact their R&D operations, with timing and risk management as key considerations
- CBPartners’ Take: Cumulative costs from patient enrollment scenarios due to COVID-19 will likely generate a significant financial drain on R&D expenditures, particularly for small-cap, clinical-stage biopharma companies, and push 25-45% of these companies into financially problematic situations that require raising capital (further exacerbated by a potential recession). 2021-2022 may see heavy M&A activity to offset the financial implications of COVID-19
COVID-19 and the Clinical Trial Ecosystem
COVID-19 disruptions to clinical research programs cloud the immediate R&D future for biopharma companies. At some research sites, new patient enrollment has been stalled or placed on hold. Others have prioritized treatment of COVID-19 patients, shifting the focus of their resources to pandemic mitigation. These are just a few examples of front-end adjustments described in press releases from industry leaders that include Eli Lilly, Bristol-Myers Squibb, Pfizer, Galapagos, Vertex, and GlaxoSmithKline.
The immediate impact is clear. Suspended trials could result in delayed timelines to regulatory approval. Details on additional impact have not been provided, but large biopharma have sufficient funds to cover fixed R&D costs during this time. However, disruptions to the steady-state management of clinical trial operations will also have a long-term effect driven by the uncertainty due to COVID-19 at a patient level.
There are several underlying market trends that should be kept in mind when trying to quantify the potentially significant impact of COVID-19 on biopharma R&D operations / cashflows:
- A Commonwealth Fund study reports that routine provider visits are down by 50-70% (depending on specialty). While clinical trial adherence is always higher than clinical practice, the two track together at least to some degree. The patient sentiment that drives provider visits to plummet by 50-70% will also have a profound impact on willingness to participate in clinical research
- ICON, the multinational contract research organization (CRO), reports that ~65% of their global research sites have been negatively impacted by COVID-19; it has consequently taken steps to withdraw their future financial guidance and develop forward-looking cost containment measures. These clinical delays and a more pessimistic CRO financial outlook are good indicators of the R&D disturbance we may see in the short- / moderate-term
- In recent statements from academic institutions – like Johns Hopkins University (JHU), which has suspended on-campus, non-COVID-19 research activities since early March 2020 – confirm the financial impact of COVID-19 is more widespread than initially reported. JHU estimates total losses of USD 25M in FY20 and USD 30M in FY21 in cost recovery for sponsored research before mitigation actions, pending relaxation of state stay-at-home orders and a phase-based approach to re-starting programs
In practical terms, COVID-19 trial impact on R&D operations can be categorized into three, time-dependent stages:
1) STAGE 1: Previously-enrolled patients (before MAR 2020) that drop out before trial completion in favor of at-home quarantine
2) STAGE 2: Patients that do not enroll due to suspended trials or disrupted referral pathways during the COVID-19 peak-pandemic (MAR – JUN 2020)
3) STAGE 3: Patients that hesitate to enroll in the short- to moderate-term future, given lingering public health concerns (exacerbated by likely endemic COVID-19 scenarios, past JUN 2020)
In STAGE 1, most patient dropouts with incomplete data will have to be discarded from the analysis (a small portion will be in the data analysis feasibility window). Patients affected by STAGE 2 must be re-recruited under extended trial timelines (in addition to fixed R&D and administrative / staff costs). And STAGE 3 will require a more significant trial recruitment effort in the future context of an endemic COVID-19 virus spanning multiple quarters (varied degrees of likelihood, but increasing in probability) where patients are less engaged with the healthcare system and natural referral pathways are stunted / disrupted. These collective patient enrollment scenarios indicate the potential of a long-term drain on financial resources.
Long-Term Risk for Small-Cap, Clinical-Stage Biopharma
Large biopharma companies with the capacity to absorb higher costs and delayed research timelines will see cashflow from marketed products minimize long-term impact on clinical trial operations. In contrast, small-cap (one-three assets), clinical-stage, Phase II-III companies are likely more susceptible to the impact of COVID-19. These industry players IPO’ed with specific budgets to complete their short-term clinical programs, and COVID-19 disruptions will generate a basal rate of R&D waste that impact the feasibility of these plans.
Key factors to assess the variable impact of COVID-19 on clinical trials include therapeutic area, asset portfolio, and target patient enrollment. Maintaining liquidity will be crucial in the short-term for these pre-revenue companies as they must now overcome more challenges to commercialization.
In the absence of mitigation strategies, downstream effects across the continuum of three stages will likely have a significant impact on small-cap biopharma. Wasted R&D expenditures are expected to compound over time while patient enrollment and persistence rates may slow, increasing per patient costs and raising questions about the feasibility of research completion.
Furthermore, the likelihood of an endemic virus presents continuous long-term risk, as clinical trials today are typically not designed to accommodate remote assessment – most clinical trial designs used today will not be able to effectively measure efficacy data via remote assessment (e.g., cannot measure FeNO or tumor-size remotely). The objective of this analysis is to analyze the financial impact of COVID-19 on clinical trials against liquidity for 30 randomly selected, small, clinical-stage biopharma companies to estimate the sector’s ability to cope with COVID-19 dynamics and deliver against their long-term research goals.
Methodology to Assess Financial Impact of COVID-19 on Small-Cap Biopharma
- CBPartners analyzed the financial filings and press releases for n=30, randomly selected, publicly traded, biopharma companies
- All companies selected for the analysis had one-three assets in development (Phase II-III) with zero marketed products – sample was structured in this fashion to simplify the analysis and focus on the potential impact of COVID-19 on clinical-stage biopharma (most vulnerable sector of biopharma to COVID-19)
- For each biopharma company in the cohort, CBPartners mapped their clinical development plan in terms of trial staging, expected start and completion timelines, trial population size, and duration
- Financial statements / filings as well as press releases were leveraged to triangulate trial completion rates when possible
- Public financial data were used to map R&D expenditure rates as well as fixed administrative and operational costs. All financial costs were discretized on a per week per patient basis
- Sensitivity analyses were conducted to understand how different magnitudes of patient enrollment rate depression due to the COVID-19 pandemic would impact company cashflows, as well as financial liquidity / need for secondary public offerings
- Patient enrollment / dropout as COVID-19 impact was modeled via three different modes of trial disruption:
STAGE 1: Previously enrolled, mid-trial patients that drop out due to COVID-19 or self-quarantine before their trial completion date (FEB 2020 to MAR 2020 impact)
STAGE 2: Broad-reaching trial delays expected; select trials halting enrollment during the peak-pandemic (MAR 2020 to JUN 2020 impact)
STAGE 3: Slower patient enrollment based on endemic COVID-19 scenarios and associated patient / HCP hesitation (18 months post-peak until trial completion)
- Sensitivity analyses were used to understand the extent of impact COVID-19 could have on the included cohort of biopharma companies:
Sensitivity Analysis Results
The results of our analysis show the short-term effects of three types of clinical trial disruption linked to COVID-19. Patient dropout, suspended enrollment, and limited future patient recruitment will directly impact R&D productivity as anywhere between 18 to 37 weeks of clinical trial productivity are effectively written off due to the pandemic. Incremental trial costs were estimated at USD 11M in the ‘best case’ scenario of COVID-19-related patient dropout, but could increase to over USD 24M in the ‘worst case’ scenario if the disruption persists, incurring significant costs on small-cap biopharma. While USD 11M-24M per trial is a more manageable write-off for large biopharma, the average small-cap biopharma company in our cohort has a working capital of USD 111M in total (across the entire clinical program for the company). We estimate that anywhere between 25-40% of the companies in our cohort will be forced to seek out extra financing options within six months. Given the imminent pressure, companies may resort to secondary public offerings or less favorable debt structures where possible in order to urgently refinance their clinical programs – all of this occurring in the context of a potential financial downturn, which will make financing even more difficult and unfavorable as far as deal terms. Although the scale of the full COVID-19 R&D disruption at this point is realistically unknown, we estimate roughly 30-50% of the current working capital shared across our cohort of small-cap, clinical-stage companies would be eroded over the next 18-24 months due to COVID-19, indicating the long-term financial impact may very well be significant.
Indicators for Magnitude of COVID-19 Disruption
Although biopharma companies likely have sufficient funds to overcome short-term disruptions (3-4 months), a subset face serious challenges to ongoing or planned research activities. Based on the small-cap, clinical-stage companies analyzed, several trends have been identified that indicate a higher magnitude of impact due to COVID-19.
COVID-19 clinical trial disruptions are more likely to affect companies that have a therapeutic focus on mild-moderate severity or chronic disease spaces (e.g., dermatology, asthma), patients with immuno-deficiencies, or traditionally high-risk patients (e.g., Medicare population). For these patients, the safety concerns associated with COVID-19 outweigh the potential clinical benefits of participating in clinical trials, contributing to higher patient dropout and persistence rates.
Conversely, companies with a therapeutic focus in acute or rare diseases (e.g., refractory oncology, stroke) or those that run short duration trials are less likely to be affected by the pandemic (since even a few missing data points per patient can be considered incomplete). While lower dropouts are expected among oncology-focused research programs, reduced recruitment of new patients may still occur as healthcare systems come under strain. Physicians are likely to refer patients to the current standard of treatment rather than academic research sites where COVID-19 care is in full swing during peak-pandemic .
Additionally, companies with limited assets in development and few partnerships are at higher risk than those with assets across different disease spaces or developed in collaboration with other organizations. Furthermore, companies operating with a relatively low level of working capital before the onset of COVID-19 may exhaust those resources, especially in a macroeconomic environment where there are fewer options for raising capital. As a result, some biopharma companies may face liquidity issues in 2020 as wasted R&D costs mount, and those looking to IPO in 2021 or even 2022 may have to adjust their capital targets.
Industry and Regulatory Mitigation Strategies
So far, some biopharma companies have undertaken a range of measures to protect their clinical and financial assets as a result of COVID-19, including:
- Home delivery of drugs (when possible, home-health drives costs as well)
- Virtual monitoring / remote assessments (mostly safety focused)
- Temporary suspension of new patient recruitment
- Postponement of upcoming trials
- Cash preservation activities (e.g., administrative adjustments)
- Patient cohort reduction
- FDA protocol negotiations (impact TBD)
However, these efforts may not generate the investor confidence desired. Alternative methods to administer treatment and assess patients imply logistical challenges. There is opportunity and urgency to leverage digital tools for industry research, though technology-enabled clinical trials remain an area of growth. Most critically, the decision to reduce target patient enrollment may raise concerns about the statistical significance of efficacy and safety outcomes. Cash preservation activities further undercut the overall outlook, as this approach signals difficulty in maintaining or securing adequate funding to cover expenses.
The FDA issued non-binding guidance that recommends adjustments to clinical research programs to ensure patient safety given COVID-19. Yet few details were provided about whether the agency would adopt flexible standards in its assessment of efficacy outcomes during the regulatory approval process – especially for clinical trials that cannot be conducted remotely (i.e., the majority of clinical trial designs today). Key elements of the FDA’s guidance for sponsors and clinical investigators are summarized below:
- Prioritize patient safety by evaluating the need to modify assessments (e.g., phone contact, virtual visit)
- Document disruptions related to COVID-19, including duration and which / how trial participants were impacted (e.g., missed visits)
- Engage with IRBs / IECs and the appropriate FDA review division when modifications to protocols, informed consent, and data collection / statistical analysis plans are anticipated
It remains to be seen whether biopharma and regulatory mitigation approaches can guard against additional financial downturns given each company’s situation.